Moving Up

Will Residential Real Estate See Market Stabilization or “Crazy” Growth?

By Gaylen Webb

February 18, 2014

Looking forward, Anderton says declining home sales may be a precursor for what home prices will do. “If the number of units sold continues to drop off, we will see a price correction within six to eight months,” he predicts, noting that a correction won’t happen immediately.

While there may be some softening or a correction in the market in 2014, it doesn’t appear likely the market will lose much momentum. Musselman thinks the market has moved to more sustainable growth and he expects healthy, but not dramatic increases in home values and sales volume for 2014. He points to a report by CoreLogic Case-Shiller that predicts home prices for 2014 will increase 7 percent in the Salt Lake metro area, 6 percent in the Provo-Orem metro, 5 percent in the Ogden-Clearfield metro, 5 percent in Logan and 3 percent in St. George.

“There are some pockets in the state that will be stronger and others that will be weaker, but I think the state average might be a little lower than the Case-Shiller numbers,” he adds.

He expects to see a steady recovery of the housing market in Southern Utah. “Inventory levels are starting to climb back. Builders with new construction and home sellers that have been waiting on the sidelines for the glut of distressed properties to diminish are now coming back into the market,” he says. “Starter homes remain in great demand while the inventory of executive-type homes is still in good supply.”

Wild Cards

For some realtors, the big questions for 2014 involve lending guidelines, what mortgage interest rates will do and a yet-to-be-determined extension of the Mortgage Cancellation Tax Relief Act, which expired on Dec. 31, 2013.

Zillow predicts mortgage interest will rise to 5 percent by the end of 2014, while homeownership rates will fall to their lowest point in almost 20 years.

Could the higher interest rate kill the housing market in 2014? Anderton doesn’t think so. “It’s all relative,” he says. “It’s not the 3 percent interest we saw a year ago, but it’s still a great rate. When I bought my first home in 1999, I got an 8 percent rate and thought that was wonderful. Who would ever have thought rates could go as low as 3 to 4 percent?”

A 5 percent interest rate may help slow down the market, he says, but it won’t kill housing. Still, buyers have gotten used to the low rates, so the higher rates will take some adjustment. According to Zillow the higher interest rates will actually help buyers, because as rates rise the refinance market will dry up, “forcing lenders to compete for buyers and potentially forcing them to loosen their lending standards.”

Another concern for the real estate market is the fact that home ownership rates are falling nationally. Realtors have seen home ownership drop to its lowest point in 18 years, to 65 percent. While the home ownership rate is also falling in Utah, the drop isn’t nearly as significant or concerning.

“We are still above the national rate,” says Anderton, “but more people are renting. A lot of that has to do with credit issues and the challenges of getting a home loan under stricter lending guidelines. We are still a little too strict when it comes to getting a mortgage.”

Back to Normal

“2014 is going to be a great year,” Anderton says. “Utah has a growing economy. Unemployment is still under 5 percent. We are No. 2 in the country in job growth. As long as we are creating households, which we are, and as long as we are creating jobs, which we are, and as long as people have optimism for the future, you are going to see Utah’s residential real estate market grow. … I think 2014 will be a good year for us and we will continue to grow, but maybe not as much as in 2013.”

Musselman is taking a cautious, optimistic view for 2014. He expects at least a marginal increase in sales activity, between 2 and 4 percent, comfortable increases in home values and increased inventory levels. “Sustainable” is how he describes the market in 2014. To be sure, builders are building; savvy investors are buying good deals, increasing their values and flipping them—and spec homes are back, too, but nothing like they were in 2005 and 2006.

“It’s going to be a normal market in 2014,” agrees Anderton. “Negative equity has been erased. The foreclosure mess we were in has gone away. We are almost back to our historical average for foreclosures, which is around 1.5 percent. Short sales are still out there, but investors have come in and bought a lot of that segment. It is a nice relief to be where we are at right now, but there is still uncertainty within the national economy.”

Will 2014 be a good year to sell a home? Musselman says, “Yes.” Will it also be a good time to buy? “Absolutely. We’re still in that rare circumstance when interest rates are still low and values are increasing.”

We are going to have our highs and lows, he says, but 2014 will be a good year just the same.